If so, start-up expenses would be deductible as ordinary and necessary business expenses if incurred after the business is underway. If expenses were incurred before the business is up and running you can elect to deduct up to $5,000 in pre-opening start-up expenses and can amortize amounts that exceed the $5,000 [under the rules provided by IRC Sec. 195(b)].
Start-up expenses generally include;
- Due diligence and business investigation expenses (surveys, market studies, feasibility studies, consultants’ fees)
- Pre-opening advertising and promotional efforts (including digital marketing such as creating a website and advertising on social media platforms)
- Travel (for efforts to find a location, to secure suppliers, distributors, customers, etc.)
- Salaries, employee benefits, insurance, and overhead costs
- Pre-opening repairs and maintenance of capital assets to be used in the business
- Accounting and legal fees that are not organizational costs
- Employee training costs
- Rent and utilities for spaces maintained in the pre-opening phase
- Costs of expanding an existing business, or beginning a new business, if a new entity is used
Don’t overlook accounting as a start-up expense when meeting with your tax advisor, as some or all of these expenses are generally paid before the business bank accounts are set-up they can easily be over looked. Be sure to review items paid from personal accounts or credit card accounts.
Remember your tax professional can’t take deductions on your return that he or she knows nothing about. When in doubt be sure to talk to your tax professional about expenses you may have incurred, this helps ensure you get the maximum deduction possible.